Effect of asset- liability management on profitability of private commercial banks in ethiopia

This research was conducted to investigate effect of ALM on profitability of private commercial banks in Ethiopia by using panel data of seven private commercial banks in Ethiopia from year 2005 - 2017 G.C.The study used audited annual financial report of selected banks and analyzed by using multiple regression models moreover, net interest income, was to measure profitability. Fixed effect regression model was applied to investigate the effects of Asset, Liability and Macroeconomic factors on banks, by employing statistical Cost Accounting model for the sampled banks. To conduct the study quantitative research method was employed and explanatory research design was used in trying to establish the causal effect relationship between profitability and asset liability management and macro-economic variables (which were; loans & advances, deposit in foreign banks, investments in security, fixed deposits, saving deposits, demand deposits, GDP gross rate, inflation rate and market concentration). Secondary data was utilized through structured record of the review of the financial statements of the bank which was obtained from the national bank of Ethiopia and each of the banks. The study utilized panel data analysis methodology in attest conclusions about the effect of the explanatory variables on the dependent variable. The study revealed that loan and advances, deposit in foreign banks, and investment in security had a statistically significant and positive except loan and advance effect on net interest income, while demand deposit had a statistically significant positive effect on net interest income. Whereas saving deposit and fixed deposit from the liability part, don’t have statistically significant positive effect on profitability as measured by net interest income. On the other hand market share and Inflation do not have statistically significant and positive effect on profitability while real GDP growth rate has got a statistically significant positive effect on profitability as measured by net interest income, Therefore, Bank managers are advised to give due attention to the statically significant positive variables (I.e, deposit in foreign bank, investment in security and GDP) to Improve profitability.